Transcript

But there's no escaping the links with AIG. The American International Group, the huge insurance firm, is the principal sponsor of Manchester United.

Britons were left in no doubt about the global reach of the US credit crisis when they learned today of the downfall of HBOS - the Halifax Bank of Scotland - which owns BankWest in Australia and which has 860,000 customers here.

More from Europe correspondent Emma Alberici.

EMMA ALBERICI: Just 24 hours ago Shane O'Riordan of HBOS was assuring investors they had nothing to fear about the state of the bank's balance sheet.

SHANE O'RIORDAN: We have a very strong business and we have access to more deposits than any other bank in the UK.

EMMA ALBERICI: Within the first hour of trading on the London Stock Exchange, shares in HBOS had halved again to be worth 80 per cent less than they were at the start of the year.

Just moments later rumours on the market were circulating that Lloyds TSB and HBOS were in emergency merger talks to create a banking colossus. The marriage of Lloyds TSB and HBOS would create a banking dynasty worth $68-billion.

At any other time, in any other financial climate, the guardians - in this case the UK Government - would have objected loudly to such a union, but the Prime Minister Gordon Brown stepped in himself, taking on the role of matchmaker, taking a view that it was more important to stabilise the stockmarket than to preserve competition.

Brian Caplen is the editor of "The Banker" magazine, part of the Financial Times Group.

BRIAN CAPLEN: The British competition authorities would have stepped in and said, look, the bank you're going to create through this merger is too big and has too big a share of the UK market, because HBOS and Lloyds together would have a 30 per cent share just about of the mortgage market, 30 per cent share of consumer loans.

And when Lloyds wanted to buy Abbey some years back, that's what the competition authorities said at the time, that they wouldn't allow that deal to go ahead so...

EMMA ALBERICI: And in fact that deal would have been quite a bit smaller than this one.

BRIAN CAPLEN: Yes, it would have done, yeah. Abbey is a smaller bank than HBOS.

EMMA ALBERICI: Can we expect to see HBOS having to offload some of its assets or indeed Lloyds offloading some of HBOS's assets?

BRIAN CAPLEN: If Lloyds steps into HBOS tomorrow, what happens to BankWest in Australia is going to be the first thing they worry about.

I think in the long run they probably wouldn't want it because Lloyds is very much a UK-based bank and it hasn't really taken any steps outside of the UK into, you know, either Europe or further afield.

EMMA ALBERICI: Just weeks ago, banking analysts in Britain were writing to their clients, telling them that Australia's Commonwealth Bank and the National Australia Bank were in talks to buy BankWest for $6-billion, a transaction that might be hastened by the company's new owners.

The news of this deal could not have come at a worse time for HBOS staff, 40,000 of whom are expected to lose their jobs.

Official figures released overnight show that there are now 1.7 million people out of work in the UK - the highest unemployment rate in 10 years.